Jack,
If Social Security does start investing in stocks where will they get the money? It's currently being spent by the government. There is no money. And if they start with new contributions only, they still have to float more paper to finance the debt. Interest rates go up.
The baby boomers are investing their own money in 401k plans. It used to be invested for them as pensions, by their employers. My understanding is that the pension managers used to invest in stocks at a higher percentage than the baby boomers are now doing. Although that may have changed over the last year or two, as the public really caught on to the mania.
All in all I suspect that since no real wealth has been created (see Savings Rate), it is being blown out of proportion as an investing theme.
Two things can be said for sure.
1. Companies now are paying less in pension costs, having transferred some of it to employees.
2. Money being invested in stocks is in the hands of people who have no idea that they can actually lose money. The last study I saw reported that something like 40% of people invested in mutual funds were certain there would not be a decline of only 10% over the next ten years.
If that doesn't guarantee a rip roaring bear market within the next year or so, I'll be very surprised. We've had 17 bears this century alone, measured by declines over 25%. Can we now really be so smart that we can avoid history? And normal market action?
I think we are in the third period this century that the market skipped a cycle and has risen to levels that can't be supported by fundamentals.
Look at Gov. Whitman in N.J. She wants to float a huge amount of bonds to raise money to invest in stocks. The excess cash from the "return" on the investment will pay for the bonds and create profit for the state. What a joke.
And if the market goes down, we have? That's right, leveraged losses. Can anybody be that stupid? With public funds?
Too long cycles create excess at the margin, and all of that gets smoothed out by the markets. But the long ups, need long (or hard, or both) downs, to alleviate the excesses.
The markets don't always do what they're supposed to, when they are supposed to. But they do what they have to, eventually.
Personally, I don't think it ends well.
But will someone please let me know exactly when it ends? Oh my god, has it already???
Dwight |
